Monday, June 10, 2013

Today's links

1---Don’t Read This if You Thought the Economy Was Improving, Yahoo

A startling 7.9 million Americans are working part-time, because they can’t find full-time work in today’s jobs market.
In total, there are still some 12 million people in the U.S. jobs market looking for work. What’s most troubling is that 37.3% of them have been unemployed for more than six months! The longer they stay out of the jobs market, the more difficulties these people will face in finding jobs as their skills become obsolete.

Looking closer at May’s jobs market report (which I feel was an all-round terrible report), new employment in industries like mining and logging, construction, manufacturing, wholesale trade, transportation and warehousing, and financial activities witnessed next to no change in May.
Yes, the growth in the jobs market is in low-paying retail and service positions. We have college graduates working jobs that pay minimum wage....

How can consumer spending in the U.S. economy rise under these circumstances…
In the first quarter of 2013, hourly compensation of Americans employed in non-farm businesses fell 3.8%. This was the biggest drop since the Bureau of Labor Statistic started to measure this statistic in 1947. (Source: Bureau of Labor Statistics, June 5, 2013.)

Consumer spending is not rising as one would expect in a real economic recovery. In fact, real personal consumption expenditures (excluding food and energy) adjusted for price changes rose less than one percent in the first four months of 2013! (Source: Federal Reserve Bank of St. Louis web site, last accessed June 6, 2013.)
And inventories of businesses in the U.S. economy also paint a grim picture of consumer spending. In March, manufacturing and trade inventories stood at $1.64 trillion, up five percent from March 2012. (Source: Ibid.) In an improving economy, like the one that the majority of media outlets and politicians tell us we are in, business inventories are supposed to decline—not rise!
No, businesses building up inventories are not a good sign....

Don’t let the stock market falsely tell you consumer spending in the U.S. economy is improving and that businesses are doing great, because that’s simply not the case! The reality is that the opposite is happening.

Looking at the health of the U.S. economy, it is very, very weak. This is the weakest economic recovery following a recession I have ever lived through—I believe many Americans would agree with me.

Spending by U.S. consumers makes up more than two-thirds of the U.S. gross domestic product (GDP). If consumer spending isn’t increasing, we can’t have a real economic recovery; it’s that simple, regardless of what rising stock prices may allude to.
What He Said:

“For the economy the message from retail stocks is quite clear: Consumer spending, which accounts for roughly 70% of U.S. GDP, is in jeopardy. After having spent like ‘drunkards’ during the real estate boom years, consumer spending is taking the same trend as housing prices, slowing down faster than most analysts and economists had predicted. As news of the recession continues to make headlines in the popular media, the psychological spending mood of consumers will continue to deteriorate, lowering earnings at most high-end retailers and bringing their stock prices down even further.” Michael Lombardi in Profit Confidential, January 28, 2008. According to the Dow Jones Retail Index, retail stocks fell 39% from January 2008 through November 2008.

2---Nearly 5 million or 9.76% of home loans delinquent or in foreclosure as of April 30th, naked capitalism

While everyone was focused on the unemployment report, most missed another important report released this past week, the Mortgage Monitor for April (pdf) from Lender Processing Services (LPS). We’ve been following it as a proxy for the ongoing mortgage crisis.
LPS reported that 3,111,000, or 6.21% of home mortgages, were more than 30 days delinquent but not foreclosure in April, down from a delinquency rate of 6.59% in March. Of those, 1,717,000 homes were more than 30 and less than 90 days past due, and 1,394,000 mortgages were more than 90 days delinquent. In addition, LPS counts 1,588,000 homes, or 3.17% of all mortgages, in the foreclosure process. That gives us a total of 4,699,000, or 9.76% of home loans delinquent or in foreclosure as of April 30th, which marks the first time since 2008 that the total percentage of mortgages in arrears has fallen below 10%...

You can see that as of April, the average seriously delinquent homeowner has not paid on their mortgage for 503 days, and that the typical home in foreclosure has been delinquent for 843 days; in general, those who are seriously delinquent (more than 90 days past due) are not being foreclosed on, and those who are in the foreclosure process are not having their homes seized. Since this metric seems to be increasing an average of ten days a month, and new foreclosure starts are being added each month which should be bringing the average days down, we can only conclude that the foreclosure process is damn near frozen…and as we’ll see in the next graphic, this isn’t just because the courts are clogged...

They show the average months delinquent for various stages of foreclosure. Again, blue represents the times for judicial states, and red for non-judicial states. The top number over each bar represents the number of months a loan has been delinquent in that stage as of April; in the small print below that are the months delinquent for each stage and type as of January 2010, the peak of the crisis.
We can clearly see that at that time, foreclosures were being started after 8 months of delinquency in both judicial and non-judicial states, but now even starting the proceedings is delayed an average of 12.9 months for non-judicial states. and 16.6 months for judicial states, or nearly twice as long.


3---Half Lives – Why the Part-time Economy Is Bad for Everyone, naked capitalism

The American Psychological Association reports a variety of ailments associated with underemployment, including depression, anxiety, psychosomatic symptoms, low subjective well-being and poor self-esteem. Researchers have found that full-time work is critical not only to the mental well-being of workers, but to their physical health as well. An increase in chronic disease is but one of the ways that forced part-time workers suffer....

On a macroeconomic level, plenty of negative effects pile up when people face the kind of insecurity that forced part-time work often brings. They may squirrel away every penny to cover surprise medical expenses, for example, which hinders the whole economy. Econ 101 tells us that when people don't have money to spend, businesses can’t sell products and services. Part-time workers become increasingly dependent on public services, which strains state and municipal budgets.

4---China's economy stumbles in May, growth seen sliding in Q2, Reuters

China's economy grew at its slowest pace for 13 years in 2012 and so far this year economic data has surprised on the downside, bringing warnings from some analysts that the country could miss its growth target of 7.5 percent for this year.
"Growth remains unconvincing and the momentum seems to have lost pace in May," Louis Kuijs, an economist at RBS, said in a note. "The short-term growth outlook remains subject to risks and we may well end up revising down our growth forecast for 2013 further."

Exports posted their lowest annual growth rate in almost a year in May at 1 percent, exposing a more realistic picture of trade following a crackdown by authorities on currency speculation disguised as export trades to skirt capital controls, which had created double-digit rises in export growth every month this year even as world growth stuttered.

May exports to both the United States and the European Union - China's top two markets - both fell from a year earlier for the third month running.
Imports fell 0.3 percent against expectations for a 6 percent rise as the volume of many commodity shipments fell from a year earlier.

The volume of major metals imports, including copper and alumina, fell at double-digit rates. Coal imports fell sharply.
"The trade data reflects the sluggish domestic and overseas demand, signaling a slower-than-expected recovery in the second quarter," said Shen Lan, an economist at Standard Chartered bank in Shanghai.

5---1) Does anybody have a clear vision of the desirable financial system of the future?, Sheila Bair

Yes, me. It should be smaller, simpler, less leveraged and more focused on meeting the credit needs of the real economy. And oh yes, we should ban speculative use of credit default swaps from the face of the planet....
3) Does the idea of a safe, regulated, core set of activities, and a less safe, less regulated, non-core make sense?
No.
The idea of a safe, regulated, core set of activities with access to the safety net (deposit insurance, central bank lending) and a less safe, MORE regulated, noncore set of activities which DO NOT UNDER ANY CIRCUMSTANCES have access to the safety net – that makes sense....

Given the cat and mouse game between regulators and regulatees, do we have to live with regulatory uncertainty?
Simple regulations which focus on market discipline and skin-in-the-game requirements are harder to game and more adaptable to changing conditions than rules which try to dictate behavior.....
You can see that dynamic playing out now, where the securitization industry is seeking to undermine a Dodd-Frank requirement that securitizers take 5 cents of every dollar of loss on mortgages they securitize. They say risk retention is no longer required because the Consumer Bureau has promulgated mortgage lending standards. But these rules are pretty permissive (no down payment requirement, and a whopping 43% debt-to-income ratio) and I’m sure that the Mortgage Bankers Association is already trying to figure out ways to skirt them.
Rules dictating behavior can sometime be helpful, but forcing market participants to take the losses from their risk-taking can be much more effective. One approach tells them what kinds of loans they can make. The other says that whatever kind of loans they make, they will take losses if those loans default. 

6---SEC moves to tighten regulations on money market funds, Reuters

A portion of the $2.6 trillion money market fund industry would be required to fundamentally change how it prices its shares under proposals issued by U.S. regulators on Wednesday to reduce the risk of abrupt withdrawals.
But the Securities and Exchange Commission plan was not as strict as some market players feared and included an industry-favored provision for funds to charge withdrawal fees and delay return of funds to customers during times of financial distress.

For more than a year the SEC has been debating whether changes made in 2010 were enough to avoid a repeat of a run on money market funds seen at the height of the financial crisis.
The additional reforms proposed on Wednesday did not go as far as a draft proposal floated last year by then-SEC Chair Mary Schapiro, who left in December.
The fund industry had warned that further major reforms could kill investor interest in money market funds.
In a compromise move, the SEC's new plan mostly focuses on prime funds for institutional investors, which are seen as more prone to runs because those investors are more sophisticated and more likely to pull large blocks of money first in a panic. ....

The second proposal would give fund boards for institutional and retail funds the authority to impose so-called "liquidity fees and redemption gates" during times of stress.
That would give funds the power to stop an outflow of investor money, an idea that the SEC's two Republican commissioners last year said they might be able to support....

While acknowledging the achievement, some reform advocates said Wednesday's proposal was significantly watered down from the one put forth by Schapiro. She was considering measures such as capital buffers and redemption holdbacks, or a broader switch to a floating NAV.

Former SEC Chair Arthur Levitt, who has been pushing for reform for all money market funds for years, said Wednesday's plan was significant, but still disappointing. "It was very unfortunate that the commission wasn't able to put through a rule that Mary Schapiro had aggressively supported," Levitt told the Reuters Global Wealth Management Summit.
Sheila Bair, the former head of the Federal Deposit Insurance Corp, said, "I am concerned that it falls short of what is necessary to protect taxpayers, mutual fund investors, and the stability of the financial system."

7---The (money market) fund board would also have the ability to impose atemporary suspension of redemptions (a "gate") if the weekly liquid assets fallbelow the 15% liquidity threshold., yahoo

Under the liquidity fees and gates alternative, if a money market fund's weekly
liquid assets fell below 15% of its total assets, the fund would be required to
impose a liquidity fee of 2% on all redemptions unless its board determined that
imposing such a fee would not be in the best interest of the fund or that the
fee should be lower. The fund board would also have the ability to impose a
temporary suspension of redemptions (a "gate") if the weekly liquid assets fall
below the 15% liquidity threshold. Such a gate would have to be lifted within
30 days, and a fund could not impose a gate for more than 30 days in any 90-day
period. Any liquidity fees or gates imposed would be automatically lifted once
the fund's weekly liquid assets had risen back to or above 30% of total assets,
although the fund board could lift them earlier. Government money market funds
would not be required to impose the liquidity fee, but they could impose
liquidity fees and gates voluntarily.

8---Declining Labor Shares and Rising Corporate Profits, owenzidar

9--Labor's falling share, political animal

The OECD has observed, for example, that over the period from 1990 to 2009 the share of labour compensation in national income declined in 26 out of 30 developed economies for which data were available, and calculated that the median labour share of national income across these countries fell considerably from 66.1 per cent to 61.7 per cent … Looking beyond the advanced economies, the ILO World of Work Report 2011 found that the decline in the labour income share was even more pronounced in many emerging and developing countries, with considerable declines in Asia and North Africa and more stable but still declining wage shares in Latin America.
It wasn’t always this way

10--More Thoughts on Job Creation in the Recovery, CEPR

so given that we are seeing weak growth, how are we doing on the job creation front? I argued that because of extraordinarily weak productivity growth, we are doing surprisingly well on the job creation front. Given our trend rate of productivity growth going into the downturn was around 2.5 percent, we would have expected almost zero job growth in an environment of 2.0 percent GDP demand growth. The increase in demand could be met pretty much entirely from improved productivity rather than with increased employment. Yet, we have actually been creating 1.8 million jobs a year over the last three years.

This is due to the fact that productivity growth has plummeted in this recovery. In normal times, we want strong productivity growth. (Why would we ever want to waste people's time?) But in a period of high unemployment, productivity growth is the enemy of jobs. For this reason the slower than normal rate of productivity growth we have seen in this upturn has been a gift. It has allowed millions of people to get jobs who would otherwise be unemployed.
...
So to sum up, the main reason that so many people are unemployed four years into the recovery is weak GDP growth. This was predictable given the nature of the downturn. Given the weakness of this growth, the U.S. has done a pretty good job creating jobs.

11---Are the big banks still at the brink? CEPR

Bubble driven house prices had raised construction to near record levels. The share of GDP going to residential construction was more than 2 percentage points above its historic average. It was 100 percent predictable that we were going to lose this boom when prices collapsed. Also since the boom led to overbuilding, which manifested itself in the form of record high vacancy rates, it was certainly predictable that construction would fall back to below normal levels. As it was, we lost more than 4 percentage points of GDP in the decline in residential construction following the crash ($640 billion in today's economy).

The equity created by the bubble also led to a wealth effect driven consumption boom with the saving rate falling to near zero. (I would argue that capital gains showing up as income led to an overstatement of income in this period, so the actual saving rate was even lower than the reported saving rate.) In any case, it was fully predictable that consumption would plummet following the loss of $8 trillion in housing wealth associated with the collapse of the housing bubble. If we assume a wealth effect of 5 cents on the dollar, that translated into a loss of $400 billion in annual consumption. (That was also a bubble in non-residential real estate, but we'll ignore this for the moment.)

This means that the combined loss in construction and consumption spending led to a drop in annual demand of more than $1 trillion. What exactly did the Fed have in its bag of tricks that was supposed to replace this amount of demand? What sector(s) of the economy was so sensitive to interest rates that it could plausibly expand to fill this huge gap in demand? Certainly there was nothing that was in evidence as of 2007. Hence "we" should have been able to see that the collapse of the housing bubble posed very serious risks to the economy....

Okay, in case this is not clear, Brad is attributing a view to Martin Feldstein and others that the banks are insufficiently hedged against the risk of a rapid rise in interest rates. Therefore, we should start raising interest rates now (with a hit to growth and jobs) in order to avoid a sudden rise in rates that will send the banks back into insolvency.

Let me put this another way just to make the point more clearly. Martin Feldstein and his ilk supposedly believe that the banks have again put themselves at great risk. If the government (Fed) doesn't take actions to slow the economy today, then the banks may again be put into bankruptcy.
Now Brad sees this as a horrible story for all of us because he seems to think that if the banks go under again there will be nothing that we can do to get the financial system back on its feet. I would argue otherwise, since central banks like the Fed have almost limitless power to re-inflate the economy. (Yes, there are political constraints, but I trust that if faced with the prospect of enduring double-digit unemployment we will be able to overcome the political constraints. Note that contrary to what is often claimed, this is not a one-time deal. If the banks collapse we can restart them a week later, a month later, or even five years later. It is best that the banking system not collapse, but we do know how to re-inflate the financial sytem and the economy.)

12---Hezbollah: A game changer in Syria , Tehran Times

Events in al-Qusayr are a transformation on the scope of the region's strategies, and Syria has entered a new phase that is not in ‘Israel's and U.S.'s favor.”– Deputy Head of Hezbollah Executive Board Sheikh Nabil Qaouk.
 
In a decisive triumph over U.S. and Zionist backed rebel forces, Hezbollah resistance fighters aided by the Syrian Army have repatriated the formerly insurgent-controlled city of Qusayr.  The victory was conceded on June 5 by the (Persian) Gulf Cooperation Council (GCC)-supplied militants after a 3-week long siege by government-allied forces for control of the strategic city......

What Mr. Carney and most Westerners fail, or perhaps refuse, to grasp is the strategic significance of Hezbollah’s defensive mission in Syria, and the plurality of support – 70% according to NATO data – enjoyed by the al-Assad government. “With Bashar al-Assad's regime on the brink of collapse,” writes one U.S. scholar associated with the influential Council on Foreign Relations, Hezbollah has entered into Syria over fears that it “stands to lose a close ally.”  The same scholar goes on to make the absurd charge that the resistance movement’s involvement in the Syrian crisis demonstrates that it has taken on a “sectarian agenda,” which will result in “imperiling Hezbollah and likely marking the end of Lebanon’s relative stability.”Strangely enough, no similar comment was made by the scholar on the destabilizing effect that Western support for the Salafi militants in Syria has had on Lebanon and the region in general.
 
Michael Young, editor of the Lebanese Daily Star, on the other hand, has a clearer view of the situation on the ground in Syria than the scholars in the West.  Acknowledging that the insurgents are losing ground in Syria, he stated, “The United States has been embarrassed, and Russia and Iran's approach [to the Syria crisis] has been validated.” Continuing, he observed, “This is a dire time for the Syrian opposition. We could be at a turning point in the war against the Assad regime. Russia and Iran stuck with Assad, while the Obama administration has spent two years fiddling about and issuing empty statements without a clear strategy.”  As for the reason behind Hezbollah’s decision to enter into the Syrian conflict, Young explained that is was essential for the resistance movement to defend itself against an “alliance between the takfiris, the Salafis, jihadists, the United States, and Israel.”

13-- Rates spike in China, sober look

A spike in short term rates could dramatically dampen bank lending and slow growth even further. A prolonged spike could even put China into a recession. Many are hoping that the PBoC will deal with this issue aggressively by injecting more liquidity into the banking system in order to reduce the risk of a major credit contraction.

14---Who Rules America, WSWS

The secret collaboration of the military, the intelligence and national security agencies, and gigantic corporations in the systematic and illegal surveillance of the American people reveals the true wielders of power in the United States. Telecommunications giants such as AT&T, Verizon and Sprint, and Internet companies such as Google, Microsoft, Facebook and Twitter, provide the military and the FBI and CIA with access to data on hundreds of millions of people that these state agencies have no legal right to possess.

Congress and both of the major political parties serve as rubber stamps for the confluence of the military, the intelligence apparatus and Wall Street that really runs the country. The so-called “Fourth Estate”—the mass media—functions shamelessly as an arm of this ruling troika.

Not a single major newspaper or media outlet has demanded an end to the spying, the closure of the NSA, the prosecution of officials responsible for the illegal spying, or impeachment proceedings against Obama, whose “high crimes and misdemeanors” in violation of the Constitution surpass anything committed by Nixon.
.
The Obama administration itself, more than any previous US administration, embodies the consolidation of power by the military and the CIA in alliance with the financial elite. ....

The ruling class is haunted by the sense that it is socially and politically isolated, that the policies it is pursuing lack any serious base of support. Even as it escalates its assault on the conditions of the vast majority of the people—driven by the crisis of the capitalist system—the corporate-financial elite feels itself threatened by the consequences of the crisis. It knows that the financial house of cards it has constructed can come crashing down at almost any point, provoking revolutionary social upheavals.

But the ruling class has ultimately only one answer to this dilemma—violent repression. Hence the inexorable buildup of the police powers of the state. They are directed not against terrorists, but against the working class.
No section of the political establishment and no official institution will fight the assault on democratic rights.

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